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Volatility in the British Pound has calmed ahead of the weekend with the currency trading increasingly tighter ranges against the Euro and U.S. Dollar.

A lack of fresh Brexit news has lead markets to square exposure to this politically-driven currency, and we will continue watching the news headlines for any meaningful developments in the Brexit saga that might have a bearing on Sterling.

At the time of writing, the Pound-to-Euro exchange rate is quoted at 1.1291, with the week's low at 1.1251 and the high at 1.1379. The Pound-to-Dollar exchange rate is quoted at 1.2332, the week's low is at 1.2302 and the high at 1.2580.

Despite Sterling settling into a tighter range ahead of the weekend, we are wary of the potential for further declines, and foreign exchange analysts at Barclays have warned that a 'no deal' Brexit outcome is their base-case expectation.

If the high-street lender is correct, Sterling faces a great deal of selling pressure over coming weeks and months.

A 'no deal' Brexit is the base case scenario, but analysts now assume this will take place in the first quarter of 2020 following a short extension and election.

The current Brexit deadline is October 31, but the Benn Bill passed by Parliament legally requires the Prime Minister to request a Brexit extension from Brussels in the event of a Brexit deal not being passed by October 19.

"Brexit’s path has become immensely more complicated. While the Johnson Government’s intent to exit the EU at all costs on 31 October appears to have been thwarted by Parliament, there still are many paths to a no-deal Brexit and it remains, narrowly, our base case outcome," says Nikolaos Sgouropoulos, an analyst with Barclays.

Amid this high uncertainty Barclays "assume" that a 'no deal' Brexit takes place in the first quarter of 2020.

Such an outcome would trigger "significant dislocations on both sides of the English Channel" and analysts at the bank say they see the UK falling into a "shallow recession" despite expected fiscal expansion and easier monetary policy.

The negative impact on Sterling will be notable according to the bank's latest suite of forecasts.

"We expect a sharp depreciation in GBP to accompany the initial stages of a no-deal Brexit and forecast a low of 1.10 in cable and high of 0.97 in EUR/GBP," says Sgouropoulos.

EUR/GBP at 0.97 equates to a GBP/EUR exchange rate of 1.03.

"Once the initial uncertainty created by short-term dislocations clears, we believe the nearly 50-year low in the real effective value of GBP should attract significant long-term buyers and investment to an economy that still has many attractive attributes," says Sgouropoulos.

Forecasts show a partial rebound in the Pound vs. the Euro as a result, taking EURGBP back to 0.93 by third quarter 2020. This gives a GBP/EUR exchange rate of 1.0752.

The GBP/USD exchange rate is however forecast to only recover back to 1.11 by the third quarter of 2020.

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